Commercial Real Estate Market Outlook

Total commercial property transaction volume for 2015 was $534 billion, up 23% from the same period in 2014 according to Real Capital Analytics (“RCA”). Average capitalization rates for all four major sectors are lower than end of year 2014 averages as well.

According to CBRE Econometric Advisors (“CBRE-EA”) as noted below, vacancy rates for all three commercial property sectors showed improvement during the fourth quarter 2015, with a small increase in the multifamily vacancy rate.

Multifamily – At the end of the fourth quarter of 2015, the national vacancy rate for multifamily properties was 4.6%, up from 4.3% in the third quarter though down 10 bps from one year ago and the lowest recorded vacancy rate in the fourth quarter since 2000. Seven out of the 62 markets tracked by CBRE-EA recorded vacancy rates below 4%, including New York and Los Angeles.

Retail – The national retail vacancy rate fell 10 bps to 11.2% in the fourth quarter of 2015. CBRE-EA expects an improving labor market and lower fuel costs to spur ongoing retail sales growth.

Office – As of December 31, 2015, the national office vacancy level was 13.2%, down 20 bps from the third quarter 2015 and the lowest level since 2008. Occupancy improvement was broad based, with vacancy falling in nearly 70% of markets covered by CBRE-EA.

Industrial – The national industrial vacancy level fell 20 basis points in the fourth quarter of 2015, to the pre-recession low of 9.4%. The vacancy rate in the industrial sector has either remained the same or decreased every quarter for 23 straight quarters, continuing the longest period of decline that CBRE-EA has ever recorded.

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